Oregon cap and trade by the numbers: A call for a complete picture

Gaps in an Oregon cap and trade analysis must be addressed to ensure informed policy decisions.

As Oregon businesspeople working in sectors including forestry, military, consulting, energy, building, education and health care, we took keen interest in the report issued recently on the impact a cap and trade program would have on Oregon’s jobs and economy.

The report– commissioned by AOI/OBA and authored by the Washington, D.C., based advisory firm, FTI Consulting — presents some interesting data, but has important gaps that must be addressed to ensure our political leaders have a more complete picture needed to make informed policy.

First, FTI’s report excludes key components of programs around the world designed to cut carbon pollution —components that would have fundamentally changed the report’s findings.

Second, the report did not address any of the actual program elements outlined in the Greenhouse Gas Cap and Investment Program Bill ( Senate Bill 557) that’s currently before the state legislature. Instead, the report models a much more general potential cap-and-trade program, absent of important flexibility features.

Third, the report fails to quantify anticipated losses to Oregon’s economy by failing to incorporate a do-nothing scenario to address carbon pollution — enumerated in a 2016 report by the national, nonpartisan business group Environmental Entrepreneurs — that could far exceed those presented in FTI’s report.

To better understand what a bill like SB 557 could mean to Oregon, let’s examine similar programs underway in the country, which is a decent sample size: data from existing cap-and-trade markets can be gathered from 10 states, where a quarter of our nation’s populace lives.

In California and the Northeast and Mid-Atlantic, cap-and-trade programs have been functioning for four and nine years, respectively. To date, the sale price of these “allowances” (permits to pollute) remain near the floor price, meaning businesses have successfully sought the lowest-cost means to comply with law.

The FTI report, meanwhile, includes an inflammatory allowance price in 2050 of $463 per ton of carbon, very far from the floor price. This ignores any potential improvement of cost curves or innovation over time. For a transparent and data-driven dialogue, FTI should disclose the cost assumptions within the report.

Other programs also contain more flexibility. When businesses are unable to reduce their pollution directly, they can purchase offsets or trade permits from others at a market price. FTI’s report excludes these crucial offsets but does note that if they were included at 8 percent of the cap’s limits (as is done in California), it could reduce allowance prices by nearly half. This is significant. In SB 557, now before Oregon’s legislature, offsets would be allowed.

The 10 states already participating in cap-and-trade programs are currently experiencing GDP growth and emissions reductions, proving that economic growth can be decoupled from emissions reduction.

Between 2005-2013, for instance, the states in the Regional Greenhouse Gas Initiative cut their power-sector CO2 emissions 40 percent while the region’s economy grew by 8 percent, and regional electricity prices fell. Meanwhile, RGGI-related investments created 16,000 jobs.

California’s economy-wide cap and trade system has experienced similar results. The program has reinvested $1.2 billion into the state, with $3.4 billion allocated to agencies for future projects. In the last five years, California’s GDP increased over 14 percent, with job growth outpacing the national average with more than 500,000 people now employed in the state’s thriving clean energy industry. And emissions produced by facilities that fall under the state’s carbon cap have dropped 10 percent.

Oregon must be smart in selecting the best policies to help grow our economy while protecting our environment. As we’ve seen in California and the Northeast, we can have — and should pursue — both.